Highlights

China’s US$50bil deal with US might not happen

 Publish date: Tue, 15 Oct 2019, 12:05 PM

BEIJING: China is still a long way from forking out US$50bil for farm goods from the United States, agriculture industry analysts say, cautioning that getting there is contingent on removing substantial technical and political hurdles.
 
Outlining the first phase of a deal to end a trade war with China, US President Donald Trump lauded his counterparts last Friday for agreeing to make purchases of US$40bil to US$50bil in US agricultural goods.
 
That would be double the US$24bil China spent on American farm goods in 2017.
 
But Darin Friedrichs, senior Asia commodity analyst at brokerage INTL FCStone in Shanghai, threw cold water on the pledge.
 
“I think it’s a meaningless big number, thrown out to get headlines, and won’t happen, ” Friedrichs told Reuters.
 
Boosting purchases so substantially will depend on further progress on other, more thorny, issues still to be dealt with in the talks, said Friedrichs and others.
 
“It’s probably still dependent on a larger deal going through, ” said Tobin Gorey, director of Agri Commodities Strategy at Commonwealth Bank in Sydney.
 
The emerging deal between China and the United States, covering agriculture, currency and some aspects of intellectual property protections, would represent the biggest step by the two countries in 15 months to end a tariff tit-for-tat that has whipsawed financial markets and slowed global growth.
 
US Treasury Secretary Steve Mnuchin has said the agriculture purchases would be scaled up annually.
 
But even with a breakthrough on bigger issues, scaling up farm imports to that level is a “big, big ask”, said Ole Houe, director of advisory services at brokerage IKON Commodities in Sydney.
 
Soybeans made up more than half of China’s agriculture purchases from the United States in 2017, at about US$13bil. Bringing in significantly larger amounts of the oilseed will be difficult with African swine fever curbing soymeal demand in China, said Houe.
 
Substantially larger soy imports from the United States would also mean reduced purchases from other producers such as Brazil, where Chinese firms have invested heavily in recent years to accelerate Brazilian soybean shipments.
 
Imports of other products, ranging from corn to pork and beef, have always been much smaller than soybean sales, impacted by what the United States refers to as non-tariff barriers.
 
To boost imports of US beef, China would need to lift its ban on hormones and drug residues in meat, allowing for similar trading conditions as those prevailing in Japan and South Korea, said Joel Haggard, Asia president of the US Meat Export Federation.
 
That could see it export more than US$1bil in beef to China, he said, or 10 times the current level, but it could take a year or two to ramp up those supplies.
 
Other China-based market watchers were cautious about expecting any notable increase in purchases beyond soybeans until a broader trade deal is finalized.
 
“As to other products, we need wait for a major breakthrough. Maybe after the deal gets signed in four to five weeks. I think the goal is hard to achieve until there is a written deal, ” said a trader with a state-owned Chinese trading firm.
 
“The market is still uncertain about whether there will be a trade deal. What if there is more escalation? What if Trump tweets something again?”
 
The world’s two largest economies have made progress in their trade dispute before without sealing a deal. In May, US officials accused China of walking away from a sweeping agreement that was nearly finished over a refusal to make changes to Chinese laws that would have ensured its enforceability.
 
Trump had said previously he would not be satisfied with a partial deal to resolve his effort to change China’s trade, intellectual property and industrial policy practices, which he argues cost millions of US jobs. Last Friday, he said he had decided that a phased approach was appropriate.
 
 
 — Reuters 

 

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